Essay on Salem Case Study

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As part of our financial analysis of Salem Telephone Company and its subsidiary, Salem Data Services, we’ve encountered several factors that may be contributing to Salem Data Service’s consistent operating loses. The first issue is the remaining available hours to sell each month. This accounts for approximately 38% of the total hours available for revenue each month. The company is losing out on huge profits by not fully utilizing these hours. In March, the company had 223 hours available to sell. The company could have increased revenues by $178,000 (223 hours* $800) if they fully utilized the hours available for sell. Another issue of concern is the large amount of fixed assets that equates to a high operating leverage. Our analysis includes these factors and our suggestions for turning Salem Data Services into a profitable company.
1) Salem Data Services has two kinds of expenses; fixed and variable. As you can see in the chart below, variable expenses with respect to hours are ‘Power’ and ‘Operations: Hourly Personnel’. Fixed expenses with respect to revenue hours include; rent, custodial services, computer leases, maintenance, depreciation of computer and office equipment, systems development and maintenance, administration, and sales.
2) The chart below lists variable expenses with respect to revenue and lists the cost per revenue hour. The variable costs per hour are 28.70. January February March
Power 1,546 1,485 1,697
Operations: Hourly Personnel 7,896 7,584 8,664
Total Variable Costs 9,442 9,069 10,361
Total Revenue Hours 329 316 361
Variable Costs per Hour 28.70 28.70 28.70 *This information was derived from exhibit 1 and 2 in the case.
3) By breaking out the

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